Understand how to apply for a mortgage in Portugal, and the types of mortgage available…
For those who have a Portuguese Residency Card (Cartão de Residencia), a Portuguese Tax Code (Numero Fiscal de Contribuinte), a Portuguese bank account (Conta Bancaria em Portugal), proof of regular income and/or a contract (Contrato) with an international or national company in Portugal, and a good credit rating, it is fairly easy to take out a mortgage.
Most banks offer attractive mortgage packages for legal residents and some have tailor-made services aimed at foreigners.
Mortgage arrangements
To get a loan from a financial institution in order to buy a property, several types of assessment are necessary:
- Expert assessment to determine the value of the property – undertaken by an independent expert working with the bank
- Age and medical records – so that the bank can determine if it is likely that the loan repayments will be met
- Income records – to determine if the applicant has the economic capacity to meet the repayments in the long run
The expert assessment fees are included in the charges made by the bank for the mortgage application.
What is necessary to apply for a mortgage in Portugal?
- Property blueprints
- Income records
- Life insurance (Segurança da Vida) to cover the terms of the mortgage
- Valid passport and identity card (Passaporte e Carta de Identidade)
- Residency card (Cartão de Residencia)
- Bank statements for several months proving receipt of income
- Medical examination (Atestado Medico) for insurance purposes
Working out the price range
It is important to establish the price range the purchaser can afford and most banks will offer to work out a simulation (Simulação) based on the price range required and average monthly income. The purchaser also needs to make sure they have enough funds to cover the deposit and legal fees.
There are three possibilities when seeking a mortgage:
- Directly from a Portuguese bank - the majority have English-speaking staff and some even have international departments for foreigners. Most of the banks in Portugal have similar lending criteria on the terms of the mortgage, how much they will be prepared to lend, what mortgage products they offer and their arrangement fees
- Use a mortgage broker - the purchaser pays extra but has the added advantage of being advised how much can be borrowed and the best mortgage products to suit individual circumstances.
- Some estate agents (Agencia de Imobiliario) may offer a mortgage service and offer similar services to mortgage brokers
Life insurance (seguro de vida)
All mortgages in Portugal require life insurance and many lenders will offer packages from their own life insurance company partners. It is also common for the bank/financial institution to require full disability cover.
Types of mortgages
Capital and interest repayment mortgage (variable rate)
A flexible mortgage where the repayments are known and the interest rate applicable is revised on a regular basis. If interest rates fluctuate the repayments stay the same – only the term of the loan is affected. It is possible to make lump sum payments or redeem the mortgage early; early settlement usually attracts a penalty which can be negotiated.
Capital and interest repayment mortgage (fixed rate)
Repayments are fixed for the whole term of the mortgage. The property owner knows exactly what will be paid each month and how many payments will have to be made. Fixed rates are usually higher than variable rates. Financial penalties can be incurred for redeeming the mortgage early, or changing to a variable interest rate. It is advisable to check what each bank’s financial penalties are.
Information provided by MC&A - Attorneys at Law Av. da Liberdade, 262 - 4º Esq, 1250-149 Lisbon, Portugal Tel: +351 21 356 99 30, Fax: +351 21 356 99 39 Website / email
Mortgage Process
For a Mortgage in Portugal you will need the following:
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First provide us with minimal information for the free simulation, ie purchase price, deposit, DOB, loan term etc
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If happy with the simulation the bank will require copies of your documentation, passport, fiscal number in Portugal (obtained by your solicitor), declaration of your employer (P60), Declaration from your employer; and other documents which will be sent to you with the simulation
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We will chase your estate agent for all relevant property documents required when submitting your application
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After the Mortgage is approved the bank will request a evaluation of the property
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If happy with the valuation the bank will send you Approval letters to sign so you are ready for completion
Visitors to the Algarve who decide to invest in a holiday or future retirement home may be surprised in the past to find that there were fewer choices here than in their home country for obtaining a mortgage.
However the last couple of years things have changed and speed on approving loans has increased. There are many banks now who are willing to offer mortgages to Nationals as well as foreigners.
For the latter we have to make a difference between foreigners being Resident and living in Portugal and foreigners having a second home but preferring to have a Portuguese mortgage for their Portuguese property.
Besides the National banks like:
- C.G.D. (Caixa Geral de Deposito)
- Millenium Bank
- NOVA Banco
- BCI and others
there are still other foreign banks willing to provide mortgages. The following can be mentioned:
- Barclays
- Banco Totta e Azores, a Portuguese bank with branches abroad.
- Jyske Bank
Although some years ago most banks insisted that the property was held by an off-shore company, this now is no longer a requirement or even not permitted (Barclays).The offshore route was a common form of property ownership and has(d) several tax advantages that may outweigh the disadvantage of paying annual management charges (normally in the range of £ 500 - £ 1000 each year). An accountant or specialist tax advisor can provide advice on specific details of offshore company ownership. See my article on offshore companies. Mortgages are available in a variety of European currencies but predominantly in EUROS. Interest rates are very reasonable at the moment of writing (March 2005) and are approx. including the spread around 3%. Moreover, expenses related to setting up a mortgage is reduced; also as a life insurance is not always a requirement anymore.
The maximum loan available is most of the times related to the value of the property and is generally limited to 75% of the valuation value or sales price whatever is the lowest. Experts of the respective banks carry out valuations and local appointed and qualified lawyers or the bank will accompany the whole procedure. Anyone applying for a mortgage will normally be required to provide proof of income, whether from employment, business, investments or pensions. Tax returns will also be required, although “non-status” mortgages are available in certain cases.
Portuguese nationals and anyone with the official “ Residencia “ card and a history in this country will have a wider choice by contacting a branch of one of the many Portuguese banks that have multiplied all over the Algarve in recent years. For younger people the bank may be willing to go up to 90% of the value of the property.
Portuguese nationals not older than 30 may be even able to get a mortgage for a period of 40 years.
Normally the minimum amount of the mortgage is at least € 75.000 and for foreigners it could go up to a maximum term of 20 years and sometimes will not be allowed to extend the borrower’s 65th. birthday.
Finally, before making an application for any mortgage it is wise to ascertain and compare the level of associated costs in order to budget accurately for your purchase. Banks will pass on legal costs to borrowers, as legal fees in Portugal generally higher than elsewhere these costs may be considerable, and a lawyer can provide some estimate before committing to a purchase. In addition, each bank charges for surveying and valuing the property, processing fees and arrangements fees. In order to reduce costs these valuation reports are specifically designed whether the property is suitable security for the loan you require. Therefore, the valuation is neither a building survey nor a report on condition, both of which require a much fuller inspection. A surveyor should undertake this type of report.
Despite the cost involved, this service provides a useful check on construction quality and confirms that you are paying a fair market price for your home.
Your estate agent should be able to help you with getting you the information on which bank is best suitbale for your type of loan.
Mortgages in Portugal
Visitors to the Algarve who decide to invest in a holiday or future retirement home may be surprised to find that there are fewer choices here than in their home country for obtaining a mortgage.
There are several reasons for this, including the fact that despite the opening up of the domestic market in recent years following reductions in interest rates few Portuguese banks will consider a mortgage application from foreign non-residents, although this may change in the future. Also the legal system for security loans on a property is cumbersome, implying a slow and costly process for foreign mortgage lenders. This is the main reason that only a very few non-Portuguese banks provide mortgages in the Algarve.
There are three banks that dominate the foreign mortgage market: a well-known British offshore bank with a representative office in the Algarve; a Danish offshore bank and the London branch of a Portugues bank. Besides that, some independent mortgage brokers intermediate in obtaining a mortgage.
Normally an offshore company is formed to hold title to the property in Portugal. The banks then secure the loan on the shares of the offshore company. The offshore route is a common form of property ownership and has several tax advantages that may outweigh the disadvantage of paying annual management charges (normally in the range of £ 500 - £ 1000 each year). An accountant or specialist tax advisor can provide advice on specific details of offshore company ownership. See my article on offshore companies.
Mortgages are available in a variety of European currencies as well as in US dollars. Now one of the banks has introduced a EURO mortgage. Now the interest rate is approx. 6%. Moreover, expenses related to setting up a mortgage is reduced; also as a life insurance is no longer a requirement.
It is difficult to find a fixed rate mortgage in any currency, so you will probably be offered a variable rate pegged at around 1,5 - 2% over the benchmark base lending rate of the chosen currency. As an example currently sterling mortgage rates are in the range of 9-9,5% and the D-mark rates are in the range of 7-7,5%. The maximum loan available relative to the value of the property is generally limited to 75% of the valuation value or sales price whatever is the lowest. Experts of the respective banks carry out valuations and local appointed and qualified lawyers will accompany the whole procedure.
Anyone applying for a mortgage will normally be required to provide proof of income, whether from employment, business, investments or pensions. Tax returns will also be required, although “non-status” mortgages are available in certain cases.
Portuguese nationals and anyone with the official “ Residencia “ card and a history in this country will have a wider choice by contacting a branch of one of the many Portuguese banks that have multiplied all over the Algarve in recent years. Following massive reductions in interest rates in the last three years, local banks initially offered mortgages around or below 5,5% in Escudos or even between 3 and 4% for young starters in the market, with the rate sometimes fixed for a period. Some provide mortgages on other currencies as well. Up to 90% loans are common, but tax returns are always required from applicants.
On the other hand, despite the fact that mortgages are now available to Portuguese nationals it has not always been common practise to have the interest rate fixed for longer periods. Because of this and the increase in interest rates during the period between June 1999 and June 2000 (an increase of over 40%) many people may find themselves already in trouble complying with their monthly re-payments.
Mortgages can also be arranged through a small number of brokers and financial advisors, some of which will charge fees. This could be a good route to take in order to find out all the available choices and your broker should advise on the mortgage which best fits your pocket , personal circumstances and your property.
Finally, before making an application for any mortgage it is wise to ascertain and compare the level of associated costs in order to budget accurately for your purchase. Banks will pass on legal costs to borrowers, as legal fees in Portugal generally higher than elsewhere these costs may be considerable, and a lawyer can provide some estimate before committing to a purchase.
In addition, each bank charges for surveying and valuing the property. In order to reduce costs these valuation reports are specifically designed whether the property is suitable security for the loan you require.
Therefore, the valuation is neither a building survey nor a report on condition, both of which require a much fuller inspection. A surveyor should undertake this type of report.
Despite the cost involved, this service provides a useful check on construction quality and confirms that you are paying a fair market price for your home.
In order to help you I will provide details of the following well-known providers:
Abbey National
Linda Kenny
Edificio Cor de Rosa r/c Esq.
EN 125 Quatro Estrades
8125 Quarteira
Portugal
Tel: +351 289397900
Fax: +351 289397889
E-Mail: abbey@mail.telepac.pt
Jyske Bank
Christian B. Andersen
Gilian Palao
76 Main Street, PO, Box 143
Gibraltar
Tel: +350 72782
Fax: +350 72732
E-Mail: christen-a@jyskebank.ltd.gi
Banco Totta & Açores
Branch in London:
a.o. Simon Perks
68 Cannon Street
London EC4N 6AQ
United Kingdom
Tel: +44 71 2361515
Fax: +44 71 2367717
I have received info that they have stopped providing mortgages on properties situated in Portugal.
Branch in Rotterdam
+31 102440464
Independent consultants:
Conti Financial Services
a.o. Simon L. Conn
204 Church Road
Hove
East Sussex
United Kingdom BN3 2DJ
Tel: +44 1273 772811
Fax: +44 1273 725789
E-Mail: enquiries@conti-financial.com
Web Site: http://www.conti-financial.com
Graham Barker Consultores
Av. José da Costa Mralha, 34
Bloco B, 3BT
8100-501 Loulé
Portugal
Tel: +351 289463271
Fax: +351 289463277
E-Mail info@gbconsultores.com
Web site: www.gbconsultores.com
Finesco
Rua do Sol, 4
8200-448 Guia
Albufeira
Tel: +351 289561333
Fax: +351 289562061
E-Mail: finesco@mail.telepac.pt
Web site:
Contact me
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